Friday, October 22, 2010

Conventional Blather on the Budget

-- Posted by Neil H. Buchanan

Early last month, I wrote a post ("Friendly Fire on Social Security") describing MSNBC talking-head Lawrence O'Donnell's gratuitous and completely inaccurate attacks on Social Security. O'Donnell has since been promoted from being a frequent guest host on Keith Olbermann's show to hosting his own prime-time talk show, "The Last Word." I have been avoiding that show, in part because I have been trying to clear the backlog of unfinished work from my recent globetrotting, but also because it is rather obvious that O'Donnell has nothing new or interesting to say. He is a partisan Democrat (having been a top aide to former Senator Daniel Patrick Moynihan of New York), but he is simply a conduit of conventional wisdom on all things economic, making him very much a "New Democrat."

Last night (Thursday, October 21), however, I was taken in by a teaser for O'Donnell's show. Most of the show was devoted to an extended discussion about the federal budget. It turns out that Esquire magazine put together a mock "budget commission," with O'Donnell moderating a three-day discussion among four former U.S. Senators, each of whom supposedly has expertise on budget issues. (Their expertise comes from their having served on the Finance Committee, which apparently imparts experience but not necessarily knowledge or insight). The bipartisan group -- Gary Hart (D-Col.), John Danforth (R.-Mo.), Bill Bradley (D.-NJ), and Bob Packwood (R.-Ore.) -- apparently agreed upon a plan of budget cuts and tax increases that would not only balance the budget within a decade but also "fix" Social Security to boot! O'Donnell spent the first half hour of his show interviewing three of the "commissioners," Packwood being unavailable.

[The MSNBC website does not, as of this moment, have a direct link to O'Donnell's show on its main page. After some searching, I found the show's main page, which provides a link to the two segments of the show dedicated to the budget discussion. There is also some discussion of the budget pseudo-commission on the show's blog. I have not yet had a chance to read the companion article in this month's Esquire. I will blog again about this issue if there is anything noteworthy in that article.]

The overwhelming tone of the discussion was that there is a huge crisis that only the real grown-ups can solve. There was much hand-wringing about the "entitlements crisis," which is standard fare for these types of get-togethers. Notably, the title of both segments was simply "Balancing the Budget," with no discussion at all of the question of how to measure the deficit. This means that, unless they were hiding something pretty important, these serious men actually think that it is important to bring the annual budget deficit to zero. This is something that not even conservative economists believe. The discussion was thus entirely lacking in nuance. Nothing about public investment as it plays into deficit computations, nothing about cyclical adjustments, nothing at all but the usual budget-balancing pieties.

Apparently, the former senators did agree that fiscal contraction should not begin until 2013, understanding that this would be disastrous for an economy that is still in desperate condition. Notably, however, Bradley stated (on his own behalf, not as part of the pseudo-commission's proposals) that a "very big fiscal stimulus" package should be enacted early next year, to fight the continuing stagnation. Notwithstanding the pose that "we're all putting partisanship aside," Danforth immediately said that he disagreed that the "failed stimulus program of the past should be followed by yet another one." Any thought that even a long-retired Republican could get past the inane -- and completely discredited -- idea that the 2009 Recovery Act had "failed" (not "fallen short," but simply "failed") was thus quickly put to rest. (As an aside, I have never understood Danforth's reputation for being a moderate. He is, among other things, the senator who most forcefully pushed Clarence Thomas's confirmation to the Supreme Court through the Senate.)

What of the actual, "tough" policy choices that these four wise old hands were able to endorse? The three substantive policy proposals that made it onto the show were: (1) defense cuts, (2) Social Security cuts, and (3) a $1 increase in the federal gas-tax. The most important thing to note about #1 and #3 is that, even as described by O'Donnell's guests, these are simply good ideas whose virtues have nothing to do with the size of the budget deficit. Ridiculously large sums of money are still being spent on weapons systems that are strategically obsolete. Hart argued that it is possible to cut $309 billion (although it was not clear if this would be a one-shot cut, an annual cut, or a ten-year total cut) from defense while improving national security. The gas tax idea is also simply good on its own merits, especially given Hart's argument that we indirectly spend about $4 per gallon of gas to protect Mideast oil fields.

Of course, these are politically volatile proposals; and it might only be possible to reach agreement on them by invoking deficit fears. Compare, for example, state-level cuts in otherwise-untouchable spending on prisons during this recession. If screaming about the deficit could actually result in the adoption of such sensible proposals, that might -- I repeat, might -- justify all of the nonsense that we hear about budget balancing. All recent experience, however, demonstrates that budget deficits are merely a convenient excuse not to help poor people, never to justify policies that rich people dislike. (See, e.g., the sudden budget dovishness of Republicans when it comes to extending the tax cuts that benefit only the wealthiest 2% of the population.)

And what of Social Security? Raise the retirement age to 70, saith the wise men, and cut the cost-of-living adjustment formula. This would be phased in, of course, so that the retirement age would not reach 70 until the year 2056. (Bradley allowed the there might be some money available for additional disability benefits for people whose jobs are physically debilitating. Of course, adding a level of bureaucracy -- and requiring actual disability -- is hardly the same as collecting Social Security at age 67.) Why do this? Bradley repeated the blatantly incorrect "sooner rather than later" mantra. Meanwhile, Hart was the one who invoked his grandchildren, which was both obligatory and completely beside the point. Once again, we are being told that Social Security is going to harm our grandchildren, so we must harm our grandchildren -- the ones who might collect (diminished) benefits in 2056 and thereafter.

I have gone over this ground many times before (most recently here), so I will spare readers another rendition of the response to "But Social Security is the biggest spending item in the budget, and deficits harm our grandchildren." What I found interesting about this episode was how easy it is to find people who really do not understand the budget or the economics of deficits, yet who have credentials and can talk about it in somber tones that sound ever-so-responsible. Expect more of this (and rapid capitulation from the White House) when the official deficit commission reports in January.

8 comments:

On stimulus spending, here's the metric I need, yet nobody anywhere seems to be talking about it:

One core argument against fiscal austerity now is that it would increase long-term deficits, because a dead economy will dry up tax revenues. That of course is sound economics, but can you help fill in the blanks below?

My framing:

The stimulus package has increased growth by A%, which over 5-10 years will drive up government revenue by B% -- C in dollar terms. That means the deficit will be D in 2015 (or so) with the stimulus, but it would have been E without it.

I guess one reason this framing is not part of the debate is that the pro-austerity people don't want to admit that stimulus spending actually decreases deficits in the medium and long term, while pro-stimulus people like me honestly don't care what those numbers are.

Why don't I care? Whether (in egarber's terms) the deficit in 2015 is D or E is not the important point. The point is that stimulus is only a one-shot addition to debt, not an ongoing increase (like, say, a decrease in tax rates, or a new drug benefit).

So, a stimulus package does not change the long-term trend of debt/GDP, other than simply shifting up the trend line by some amount. It is true that D is less than E, which is nice for people who think that levels of debt and deficits matter. But I'm not one of those people.

Given that I know egarber to be asking in good faith, however, I will think about this a bit more and post something in the future. I'll see if one of the obvious think-tanks has done something along these lines; but, in any case, I'll describe how we would know the magnitudes involved, and what they would mean.

while pro-stimulus people like me honestly don't care what those numbers are.

But in any debate, being able to prove that an idea is phony goes a long way. In other words, on their own terms, stimulus is still the better answer. That can really resonate.

(Oddly, those guys already adhere to a version of this idea, since that's how they defend spending billions on tax cuts -- it's just that tax cuts are too inefficient to pay for themselves, outside of the far reaches of the Laffer Curve. Infrastructure investments are a different story...)

So your bias aside, I expect a full analysis for this use.... he he :)